MEMORANDUM DECISION Pursuant to Ind. Appellate Rule 65(D), Nov 19 2015, 9:03 am this Memorandum Decision shall not be regarded as precedent or cited before any court except for the purpose of establishing the defense of res judicata, collateral estoppel, or the law of the case.
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE Emerito F. Upano Jeffrey S. Zipes Indianapolis, Indiana Coots, Henke & Wheeler, P.C. Carmel, Indiana
IN THE COURT OF APPEALS OF INDIANA
Roger Tolentino and Repto, Inc., November 19, 2015 Appellants-Plaintiffs, Court of Appeals Case No. 49A02-1502-CC-113 v. Appeal from the Marion Superior Court Sheldon J. Hermann and Cheryl The Honorable Heather Welch, A. Hermann, Judge Appellees-Defendants Trial Court Cause No. 49D01-1403-CC-6959
Bailey, Judge.
Case Summary [1] Appellants/Plaintiffs/Counter-Claim Defendants Roger Tolentino and Repto,
Inc. (collectively, “Repto”) appeal an order for the payment of attorney fees to Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 1 of 7 Defendants/Counterclaimants Sheldon and Cheryl Hermann (collectively, “the
Hermanns”) as a sanction under Indiana Trial Rule 37. We affirm.
Issues [2] Repto presents two issues for review:
I. Whether the trial court abused its discretion by ordering Repto to produce business tax returns; and
II. Whether the trial court abused its discretion by ordering Repto to pay attorney fees of $1,000.00.
Facts and Procedural History [3] On February 25, 2013, the Hermanns purchased a laundromat from Repto, and
executed a promissory note in the principal sum of $109,900.00. On March 7,
2014, Repto filed a complaint alleging that the Hermanns had defaulted on the
promissory note. The Hermanns answered the complaint and filed
counterclaims against Repto for actual fraud, constructive fraud, and deception.
[4] The Hermanns served Repto with a request for production of documents,
seeking corporate documents including financial statements and federal and
state tax returns for “Mr. Klean Laundry and Discount Tobacco since 2010.”
(App. at 43.) Repto produced some financial documents. However, with
respect to the requested tax returns, Repto responded: “Information regarding
tax returns … is privileged under federal and state law.” (App. at 45-46.) The
Hermanns filed a motion to compel production.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 2 of 7 [5] The trial court conducted a hearing on January 28, 2015. Repto argued that its
tax returns were privileged and that discovery of the returns would not lead to
admissible evidence because the Hermanns had admitted to execution of the
promissory note and acknowledged the recitation of language therein. The trial
court rejected these contentions, ordered Repto to produce the tax returns, and
imposed a discovery sanction of $1,000.00. Following the denial of a motion
for reconsideration, Repto appealed.
Discussion and Decision Standard of Review [6] Indiana Appellate Rule 14(A)(1) provides for an interlocutory appeal as a
matter of right from an order “for the payment of money.” An order for the
payment of attorney fees as a sanction under Indiana Trial Rule 37 is one
example of an order “for the payment of money” which triggers the application
of Appellate Rule 14(A)(1). Huber v. Montgomery Cnty. Sheriff, 940 N.E.2d 1182,
1184 (Ind. Ct. App. 2010). The trial court has broad discretion when ruling on
discovery issues; we will reverse only upon a showing that the trial court has
abused its discretion. Id. at 1185. An abuse of discretion occurs when the trial
court’s decision is clearly against the logic and effect of the facts and
circumstances before the court or when the trial court has misinterpreted the
law. Id.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 3 of 7 Abuse of Discretion – Order for Production of Documents [7] Repto argues that business tax returns are privileged pursuant to 26 U.S.C. §
6103(a), providing:
No officer or employee of the United States, [and] no officer or employee of any State shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee[.]
Repto contends that the trial court misconstrued the law when it determined
that the provision did not apply to the instant discovery dispute. The
Hermanns respond that even a cursory reading of the language reveals that it
governs the conduct of government employees. We agree. Repto has not
shown that the trial court misapprehended the law by concluding that 26
U.S.C. § 6103(a) did not categorize tax returns as privileged documents for
discovery purposes.
[8] Repto nonetheless suggests that, once the litigant’s tax information has been
disclosed to a government employee, it is privileged unless the “litigant himself
tenders an issue as to the amount of his income.” (Appellant’s Brief at 9 (citing
Kingsley v. Delaware, Lackawanna & Western Railroad, 20 F.R.D. 156, 158
(S.D.N.Y. 1957)). Repto asserts that the income of the laundromat was not
placed in issue by its complaint, and that the income is wholly irrelevant after
the Hermanns admitted to execution of the promissory note and acknowledged
the language of the integration clause representing that the agreement was the
entire agreement and understanding of the parties.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 4 of 7 [9] Indiana Trial Rule 26(B) provides:
Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject-matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.
[10] Repto has insisted that its complaint on the promissory note did not place the
business income at issue and the Hermanns admitted the execution of the
promissory note and its key provisions. However, this does not render the tax
returns outside the scope of discovery. The Hermanns alleged that Repto had
fraudulently induced them to purchase the laundromat by misrepresenting the
income potential, a claim Repto largely ignores.
[11] The scope of permissible discovery is broad, including that which “appears
reasonably calculated to lead to the discovery of admissible evidence.” Id. See
Hatfield v. Edward J. DeBartolo Corp., 676 N.E.2d 395, 399 (Ind. Ct. App. 1997)
(recognizing that the rules of discovery are designed to “allow a liberal
discovery process, the purposes of which are to provide parties with information
essential to litigation of the issues, to eliminate surprise, and to promote
settlement”), trans. denied. Repto has not shown that the trial court abused its
discretion by ordering the disclosure of business tax returns.
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MEMORANDUM DECISION Pursuant to Ind. Appellate Rule 65(D), Nov 19 2015, 9:03 am this Memorandum Decision shall not be regarded as precedent or cited before any court except for the purpose of establishing the defense of res judicata, collateral estoppel, or the law of the case.
ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEE Emerito F. Upano Jeffrey S. Zipes Indianapolis, Indiana Coots, Henke & Wheeler, P.C. Carmel, Indiana
IN THE COURT OF APPEALS OF INDIANA
Roger Tolentino and Repto, Inc., November 19, 2015 Appellants-Plaintiffs, Court of Appeals Case No. 49A02-1502-CC-113 v. Appeal from the Marion Superior Court Sheldon J. Hermann and Cheryl The Honorable Heather Welch, A. Hermann, Judge Appellees-Defendants Trial Court Cause No. 49D01-1403-CC-6959
Bailey, Judge.
Case Summary [1] Appellants/Plaintiffs/Counter-Claim Defendants Roger Tolentino and Repto,
Inc. (collectively, “Repto”) appeal an order for the payment of attorney fees to Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 1 of 7 Defendants/Counterclaimants Sheldon and Cheryl Hermann (collectively, “the
Hermanns”) as a sanction under Indiana Trial Rule 37. We affirm.
Issues [2] Repto presents two issues for review:
I. Whether the trial court abused its discretion by ordering Repto to produce business tax returns; and
II. Whether the trial court abused its discretion by ordering Repto to pay attorney fees of $1,000.00.
Facts and Procedural History [3] On February 25, 2013, the Hermanns purchased a laundromat from Repto, and
executed a promissory note in the principal sum of $109,900.00. On March 7,
2014, Repto filed a complaint alleging that the Hermanns had defaulted on the
promissory note. The Hermanns answered the complaint and filed
counterclaims against Repto for actual fraud, constructive fraud, and deception.
[4] The Hermanns served Repto with a request for production of documents,
seeking corporate documents including financial statements and federal and
state tax returns for “Mr. Klean Laundry and Discount Tobacco since 2010.”
(App. at 43.) Repto produced some financial documents. However, with
respect to the requested tax returns, Repto responded: “Information regarding
tax returns … is privileged under federal and state law.” (App. at 45-46.) The
Hermanns filed a motion to compel production.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 2 of 7 [5] The trial court conducted a hearing on January 28, 2015. Repto argued that its
tax returns were privileged and that discovery of the returns would not lead to
admissible evidence because the Hermanns had admitted to execution of the
promissory note and acknowledged the recitation of language therein. The trial
court rejected these contentions, ordered Repto to produce the tax returns, and
imposed a discovery sanction of $1,000.00. Following the denial of a motion
for reconsideration, Repto appealed.
Discussion and Decision Standard of Review [6] Indiana Appellate Rule 14(A)(1) provides for an interlocutory appeal as a
matter of right from an order “for the payment of money.” An order for the
payment of attorney fees as a sanction under Indiana Trial Rule 37 is one
example of an order “for the payment of money” which triggers the application
of Appellate Rule 14(A)(1). Huber v. Montgomery Cnty. Sheriff, 940 N.E.2d 1182,
1184 (Ind. Ct. App. 2010). The trial court has broad discretion when ruling on
discovery issues; we will reverse only upon a showing that the trial court has
abused its discretion. Id. at 1185. An abuse of discretion occurs when the trial
court’s decision is clearly against the logic and effect of the facts and
circumstances before the court or when the trial court has misinterpreted the
law. Id.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 3 of 7 Abuse of Discretion – Order for Production of Documents [7] Repto argues that business tax returns are privileged pursuant to 26 U.S.C. §
6103(a), providing:
No officer or employee of the United States, [and] no officer or employee of any State shall disclose any return or return information obtained by him in any manner in connection with his service as such an officer or an employee[.]
Repto contends that the trial court misconstrued the law when it determined
that the provision did not apply to the instant discovery dispute. The
Hermanns respond that even a cursory reading of the language reveals that it
governs the conduct of government employees. We agree. Repto has not
shown that the trial court misapprehended the law by concluding that 26
U.S.C. § 6103(a) did not categorize tax returns as privileged documents for
discovery purposes.
[8] Repto nonetheless suggests that, once the litigant’s tax information has been
disclosed to a government employee, it is privileged unless the “litigant himself
tenders an issue as to the amount of his income.” (Appellant’s Brief at 9 (citing
Kingsley v. Delaware, Lackawanna & Western Railroad, 20 F.R.D. 156, 158
(S.D.N.Y. 1957)). Repto asserts that the income of the laundromat was not
placed in issue by its complaint, and that the income is wholly irrelevant after
the Hermanns admitted to execution of the promissory note and acknowledged
the language of the integration clause representing that the agreement was the
entire agreement and understanding of the parties.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 4 of 7 [9] Indiana Trial Rule 26(B) provides:
Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject-matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or the claim or defense of any other party, including the existence, description, nature, custody, condition and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.
[10] Repto has insisted that its complaint on the promissory note did not place the
business income at issue and the Hermanns admitted the execution of the
promissory note and its key provisions. However, this does not render the tax
returns outside the scope of discovery. The Hermanns alleged that Repto had
fraudulently induced them to purchase the laundromat by misrepresenting the
income potential, a claim Repto largely ignores.
[11] The scope of permissible discovery is broad, including that which “appears
reasonably calculated to lead to the discovery of admissible evidence.” Id. See
Hatfield v. Edward J. DeBartolo Corp., 676 N.E.2d 395, 399 (Ind. Ct. App. 1997)
(recognizing that the rules of discovery are designed to “allow a liberal
discovery process, the purposes of which are to provide parties with information
essential to litigation of the issues, to eliminate surprise, and to promote
settlement”), trans. denied. Repto has not shown that the trial court abused its
discretion by ordering the disclosure of business tax returns.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 5 of 7 Abuse of Discretion – Attorney’s Fees [12] Indiana Trial Rule 37 provides for an award of sanctions related to a motion to
compel:
If the motion is granted, the court shall, after opportunity for hearing, require the party or deponent whose conduct necessitated the motion or the party or attorney advising such conduct or both of them to pay the moving party the reasonable expenses incurred in obtaining the order, including attorney’s fees, unless the court finds that the opposition to the motion was substantially justified or that other circumstances make an award of expenses unjust.
The award of sanctions is mandatory, subject only to a showing that the losing
party’s conduct was substantially justified, or that other circumstances make an
award of expenses unjust. Huber, 940 N.E.2d at 1186. A party is substantially
justified in resisting discovery if reasonable persons could conclude that a
genuine issue existed as to whether a person was bound to comply with the
requested discovery. Id.
[13] Repto makes a cursory argument that its opposition to the motion to compel is
substantially justified because its claim of privilege was not “frivolous,
unreasonable, groundless, or litigated in bad faith.” (Appellant’s Brief at 15.)
Repto does not otherwise develop an argument as to substantial justification or
unjustness of the award. Repto has not shown that the trial court abused its
discretion by ordering a mandatory sanction in compliance with Trial Rule 37.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 6 of 7 Conclusion [14] Repto has not demonstrated that the trial court abused the broad discretion
accorded to the trial court in discovery matters.
[15] Affirmed.
Baker, J., and Mathias, J., concur.
Court of Appeals of Indiana | Memorandum Decision 49A02-1502-CC-113 | November 19, 2015 Page 7 of 7